So in a Bigger Pockets article the author suggested you needed to beat 6% a year for stocks to make it worth it.
(
http://www.biggerpockets.com/renewsblog/2013/07/17/real-estate-vs-stocks/& http://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-vs-stocks/)
With the opportunity cost of a 401k, the numbers would look something closer to this.
Tax Rate Original Investment Rate of return $ after 30 years
28% 10 8.00% $100.63
7.2 9.25% $102.32
33% 10 8.00% $100.63
6.7 9.50% $101.98
35% 10 8.00% $100.63
6.5 9.60% $101.68
39.6% 10 8.00% $100.63
6.04 9.90% $102.56
I feel like a mental framework for decision making could be:
1) Do I have an employer match? If so, do that. 100% return the first year would require 12% to just break even in the 28% federal tax bracket.
2) Do you actually want to do the work of REI? Do I have the skills?
3) Am I comfortable with my diversification if I invest in real estate?
4) Am I comfortable with the amount of leverage needed?
Other pros and cons:
+1 RE: Ability to understand the market and negotiate for a price below market value
+1 RE: 3% historic appreciation
+1 RE: Access to cash flow if you need it
+1 RE: Additional tax benefits
+1 RE: Ability to control your investment
+1 index fund in 401k: So easy to sell, even if there's a penalty to get it out of the tax-deferred account early.
+1 index fund in 401k: Way less work
+1 index fund in 401k: So simple to reinvest profits
Depending on your personal preferences, you can weigh these factors accordingly.
Obviously you'd want a way better cash on cash return than these numbers to justify the extra work. I still think it's interesting to know the numbers.